Insurance through super– how it works, what you need to know

 Life's uncertainties may not be our favourite topic, but for those raising families or juggling significant debts, life insurance is a vital necessity. In an ideal world, coverage would extend to total and permanent disability (TPD), income protection, and trauma insurance. The catch? This comprehensive coverage often comes at a price. However, your super fund can be a cost-effective solution. By leveraging group cover, your super fund negotiates bulk rates, potentially resulting in lower premiums. The key is understanding your protection.

Approximately 50% of working Australians are aware of having insurance through their super. However, many fail to assess or customise their coverage. This 'she'll be right' attitude can leave families in financial distress during unexpected events. Take a moment to understand your super's default cover, which typically includes Total and Permanent Disability (TPD) and life insurance (death cover).

But what exactly does default cover include? It varies among funds. Some provide income protection as part of the default insurance, while others require members to opt in and pay an additional premium. It's crucial to know precisely what your super default cover includes. You can easily check your super insurance details by reaching out to your fund or using their apps.

While default cover is a convenient starting point, it may not align with your personal needs. The 'set and forget' mentality can lead to underinsurance, leaving you or your family financially vulnerable. Studies, such as the Underinsurance in Australia 2020 report, highlight a gap between the cover many Australians have through super and their actual needs, especially for young families.

The default cover with your fund doesn't remain constant throughout your working life. Life cover usually peaks at age 40, diminishing afterward. This may not be sufficient if you delay family planning until your 30s or 40s. It's essential to periodically assess your cover to ensure it reflects your current life stage and financial obligations.

To remove the guesswork, various tools are available to help determine the right coverage. Canstar's life insurance calculator or your super fund's online calculators can guide you in deciding the appropriate level of cover for your situation.

If you find that your default cover is inadequate, you have the option to increase it through your super. While this may require a medical questionnaire or check-up, it's often more convenient and could be cost-effective. However, consider the impact on your retirement savings, as premiums directly reduce your super balance.

It's crucial to strike a balance between meeting your insurance needs and safeguarding your long-term financial goals. Speak with your fund to understand your current cover, assess your protection needs, and determine the impact on your super balance if you choose to increase your cover.

However, don't assume you have cover automatically. Situations such as being under 25, having a super balance below $6,000 or inactive, or insufficient super to pay premiums can potentially leave you without cover. Ensure you're not doubling up on cover by having multiple super accounts, as this may lead to paying duplicate premiums for policies you can't claim on.

In conclusion, life insurance through your super is a valuable resource, but it requires proactive management. Periodically review your cover, customize it according to your needs, and be aware of potential gaps or situations that could leave you uninsured. By staying informed and taking control of your life insurance within your super fund, you're not just securing your family's financial future — you're ensuring peace of mind in an unpredictable world.